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Hibbett Q4 Earnings Miss on Soft Sales

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Sporting goods retailer Hibbett Sports Inc. (HIBB - Analyst Report) reported fourth-quarter fiscal 2014 results with earnings of 64 cents per share, down 12.3% from the year-ago quarter earnings of 73 cents and short of the Zacks Consensus Estimate of 69 cents. Dismal earnings during the quarter mainly resulted from difficult comparisons from the prior-year quarter, given the additional week in fiscal 2013 that contributed about 7 cents to earnings last year.

Highlights of the Quarter

Net sales of this Zacks Rank #5 (Strong Sell) company increased by a marginal 0.2% year over year to $217.8 million, while it came below the Zacks Consensus Estimate of $222 million. The downside was attributed to soft sales performance in January due to the impact of extremely chilly weather that forced store closures and weak sales from the college football championship game this year, offset by favorable holiday sales.

Comparable-store sales (comps) for the quarter increased 1.7% on a comparable 13-week basis. Monthly comps reflected an increase of 5.1% in November and 4.3% in October, while it declined 9.8% in January. However, following the easing of the weather in February and a shift to spring collections, the company’s comps have gained strength quarter-to-date, rebounding to high mid-single comps growth so far.

Hibbett’s gross profit inched down 0.6% to $78.0 million from $78.5 million in the year-ago comparable quarter. However, gross margin contracted 30 basis points (bps) to 35.8% during the quarter. Product margin was down 9 bps in the quarter due to higher markdowns, while warehouse and store occupancy expenses as a percentage of sales increased 21 bps.

During the quarter, store operating, selling and administrative expenses increased 7.0% to $47.3 million, while as a percentage of revenue it expanded 140 bps to 21.7%. The year-over-year increase in SG&A expenses as a percentage of sales was due to an additional week last year together with higher benefit costs, new store expenses and cost associated with its new corporate office. Moreover, store labor and benefits rose significantly in January due to the insufficient sales.

Gross margin contraction and deleveraged operating expenses impacted the company’s operating margin. Hibbett’s operating margin for the quarter contracted 180 bps to 12.4% compared with 14.2% in the comparable year-ago quarter. In dollar terms, operating income declined 12.6% year over year to $27.0 million.

Fiscal 2014 Highlights

For fiscal 2014, the company’s earnings came in at $2.70 per share, a marginal 0.7% decline from $2.72 per share in fiscal 2013 and below the Zacks Consensus Estimate of $2.75 per share. Sales for the year increased 4.1% to $852.0 million, while it was marginally short of the Zacks Consensus Estimate of $855 million.

Financials

Hibbett ended fiscal 2014 with a strong balance sheet comprising $66.2 million in cash and cash equivalents, no outstanding debt and $80 million available under its credit facility.

During the quarter, Hibbett bought back 21,500 shares for $1.3 million. As of Feb 1, 2014, Hibbett had nearly $229.6 million remaining under its share repurchase program worth $250.0 million, authorized on Nov 15, 2012.

Stores Update

During fiscal 2014, Hibbett enhanced its store network by opening 72 new stores and expanding 14 high-performing stores, while it shut 18 underperforming stores. As a result, the company’s total store count at the year end was 927 in 31 states.

Fiscal 2015 Outlook

For fiscal 2015, the company expects earnings per share guidance to range from $2.78–$2.96, with a projected comps growth in the low-to-mid single digit range. The company anticipates flat to slightly positive gross margin in the upcoming fiscal year. Further, SG&A expense as a percentage of sales in fiscal 2015 is expected to expand based on higher health care costs and marketing and IT costs.

Hibbett expects to further expand its store base in fiscal 2015 by opening about 75 to 80 new stores. Additionally, the company plans to expand nearly 10 – 15 high-performing stores and close about 15 to 20 stores during fiscal 2015.

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